More and more life insurance distributors are engaging in a trade war. Most online brokers and banks promote the absence of fees on their life insurance policies. Is this really the first selection criterion? Are we winning over time?
I am a financial investment advisor in Lyon. The
wealth management is an exciting world, which I discovered on the job after studying mathematics applied to finance and insurance. My
University education taught me to model complex financial products, for example, but I didn't learn any financial education precepts.
So much so that I made many mistakes in the management
of my first life insurance. I am trying today to raise awareness among
investors to the issues I have encountered.
The different costs of life insurance
Life insurance is
a fiscal envelope, attractive to the investor. This placement is managed
by an insurer from capital deposited in a bank. The investor is
free to choose funds in which to invest through its life insurance (for example, the famous euro fund, dear to the French). It can also
delegate the various arbitrations to the distributor, namely the broker,
the insurer or financial investment advisor.
There are therefore many intermediaries in the assembly
life insurance. Obviously, each intermediary is paid for the
work he does. This therefore generates several types of costs.
common that we meet are the following:
Payment fees: it
this is a deduction made from the insured's payment
Management fees: each year,
the capital held on life insurance is deducted by a certain percentage in order
finance the keeping of accounts
Exit costs: less and
less present in the financial conditions of life insurance, the sum
redeemed since the life insurance is cut off the exit costs.
Life insurance fund fees
You thought you only had three types of fees in the
more ? Think again, the funds in which you invest by the
through life insurance themselves are charged with costs.
Annual management fees, performance fees … The fees can be numerous and
greatly reduce the value of your financial portfolio over the long term.
These costs are listed in the information document
key for the investor, the KIID. When purchasing your life insurance, your wealth management advisor is required to give it to you. Do not hesitate to ask him for the motivation of his choice of funds for this
The impact of fees on your capital
Now that we have introduced the different types of
life insurance costs, you can distinguish them in two
One-shot fees, which we pay once like the fees on
installments. These are costs that can be amortized over the duration of
the investment. Exactly like notary fees when you buy
recurring like management fees. These are fees charged every
Therefore, if you invest 10,000 euros on a
life insurance deducting 1% management fees and 4% fees on
- An amount of 400 euros will be deducted at the entrance for costs
- 5 years later and without revaluation, you
will have paid 470 euros more for the management fees
- In 10 years, 917 euros will have been paid
for management fees
As you can see, management fees will impact your capital in the long term. And
this, even if the rate seems low to you.
Over 10 years, a management rate of 2% (found at
some banks and CGP) will have cost you nearly 1,800 euros. We are
far from the small 400 euros of fees on installments.
Many investors focus on fees over
payments and try to reduce them as much as possible because it is painful to see
its capital decrease instantly upon payment. Banks and online brokers have understood this well: they
offer contracts free of charge on installments.
But they have to get paid one way or another.
For this, they found clever but not very transparent assemblies for
their investors …
Reduced fees from banks and online brokers
As the Americans say: “There is no free
lunch “. In other words, if it's cheaper, there's a reason.
If, today, banks and online brokers
can offer life insurance free of charge on payment, that's becausethere is no dedicated entrance board.
I mean, independent advice that you find in
save a few points on payment fees, saving money
sometimes deprives of quality independent advice. The type of advice that
would have allowed him to optimize his assets and earn much more than the sum
Before my second life as a wealth management advisor,
I started out as an investor with life insurance
opened in an online bank. My level of financial literacy was quite low at
that time … To choose, my criterion was simple: the least possible expenses.
And since I didn't know how to build my allowance
of life insurance, I chose a (renowned) manager to invest my money. The
online banks are adept at marketing: you are being presented with a
dedicated manager from 5,000 euros outstanding. If only…
I will explain to you why I quickly became disillusioned afterwards. So I had to pay an extra layer of
fees: 1% per year. Coming to cut a little more on the
net profitability of the product. In return, the manager had to select me
the best funds depending on the economic context.
Three years have passed. The level of risk was overall
similar to that of the CAC 40. Over this period, the French index had
performed by 20%. My life insurance, it has a painful 3% … My life insurance, which had to be managed in a
independent, was in fact made up of a majority of the
One way for him to increase his remuneration. Funds
invested were themselves deducted from fees annually by the
These funds are also lucrative for the insurer, since they pay them part of their performance!
By digging a little more on the famous KIID than little
of investors read, we see that the insurer's retro-commission is
by 2%. In other words, 2% of the annual performance of the fund was transferred to
the bank. Add, of course, to the 1% she deducted “transparently” from life insurance.
This is where had gone
the 17% … In fees that were hidden from me.
There is no magic, the fees are taken from the
investor capital. Hence the very poor performance of my life insurance.
Another detail: the adequacy between the risk I had
chosen and the investment horizon was not optimal. But I didn't even know
what it was about at the time. I just clicked on the places on the form
which seemed to me the most relevant.
Costs must be synonymous with added value
In the world of wealth management, there is a
multitude of life insurance policies with different costs.
Each fresh, in its
nature and amount, must be justified by a value issued.
Thus, the fees on the installments correspond
generally to a remuneration for the advice and the setting up of
life insurance. Management fees are used to remunerate the monitoring of your
portfolio by a manager and bookkeeping by the insurer.
You might as well say that you have every interest in choosing
life insurance with the lowest cost for equal benefits.
However, keep in mind that you should not drop to
any price the amount of fees.
Especially if the product comes with relevant advice
and independent as a financial investment advisor can.
Agree to pay 1
to win 2. Your finances will thank you.
To do this, do not hesitate to challenge your manager and
ask him for the risk return ratio of the portfolio he created for you. In
comparing it with those of the market indices, you will be able to know if your
portfolio is efficient and presents a good risk return ratio.
A good manager, through active management, must be in
ability to provide you with better performance than the
references. Otherwise, you might as well do passive management and invest in destrackers (ETFs) …